Adam Davidson has an interesting piece in the NYT Magazine noting the rapid growth in the percentage of young adults who continue to live in their parents’ home well into their 20s. The main explanation for this shift is the deteriorating labor market prospects for young people. While the piece does note this fact and has some discussion of the causes, it would be worth going into the latter in a bit more detail.

The country has pursued a set of policies over the last three decades that have the effect of redistributing income upwards. The most important of these at the moment is the high unemployment policy being pursued by Congress. Congress decided that it wanted to rapidly reduce the budget deficit after the 2009 stimulus. This has slowed growth and prevented millions of workers from getting jobs. It has also meant that many workers with jobs are working fewer hours than they would like.

Perhaps most importantly, high unemployment substantially weakens the bargaining power of workers in the bottom half of the wage distribution (these are disproportionately younger workers), so that they end up with lower wages. (See my book with Jared Bernstein, Getting Back to Full Employment.) In short, the decision by Congress to run lower budget deficits has forced millions of young people to move back with their parents.

There are many other policy decisions that have also hurt the wages and job prospects of young people. The decision of the Clinton Administration to have a highly valued dollar back in the late 1990s led to a large trade deficit which is another major cause of high unemployment. The protection of doctors and other highly paid professionals from international competition raises the costs of health care and other services, thereby reducing the real wages of most workers.

And of course the massive government support of the financial sector, in the form of too big to fail services, bailouts, and tax subsidies (other industries are taxed more so that the financial industry can be taxed less), has come at the expense of the rest of the economy which might otherwise be better situated to employ young workers.

Anyhow, the tales in this piece are striking, as many young people continue to need substantial support from their parents at ages where they would have been on their own in prior decades. It is important to recognize the policies that led to this outcome.

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